Likely inflation spike won’t unsettle RBA

The latest annual inflation figures are expected to show a huge jump in prices, particularly for fuel, growing well above the Reserve Bank of Australia’s two to three per cent target band.

But RBA governor Philip Lowe won’t be reaching for his interest rate lever to stem the tide, being more concerned about the damage virus lockdowns have done to Australia’s economic recovery.

The NSW government is expected to extend its lockdown for at least another month until the end of August, putting further strain on the national economy.

Economists are already expecting the economy to contract in the September quarter as a result of the lengthy Sydney restrictions as well as expired snap lockdowns in Victoria and South Australia.

The federal government is working on further measures to support NSW businesses and individuals.

Finance Minister Simon Birmingham wants to put NSW in the best possible position to bounce back when restrictions end.

“Every other part of the Australian economy has bounced back strongly to date from COVID suppression strategies and lockdowns that have been put in place,” he told Sky News.

The consumer price index for the June quarter will be released by the Australian Bureau of Statistics on Wednesday.

Economists’ forecasts centre on a CPI rise of 0.7 per cent in the June quarter, taking the annual rate to 3.8 per cent.

This is up sharply from the 1.1 per cent pace as of the March quarter and partly reflects last year’s recession-related price slump falling out of the equation.

Forecasts range from an inflation rise of 0.4 per cent to 0.9 per cent for the quarter.

The more interest-rate sensitive underlying measures of annual inflation – which smooth out volatile price swings – are expected to remain subdued at below two per cent.

Dr Lowe and his board members have been anticipating a spike in inflation and see this as only a temporary rise with the annual rate returning to below two per cent by the end of the year.

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